Tuesday, 19 June 2012

Simply put, a
shareholder’s agreement is a contract for a business’s shareholders. It
regulates the shareholder’s professional relationship with other shareholders,
as well as the business itself. There’s no legal obligation for shareholders to
enter into this type of contract, and even if they do, there are no legal
requirements regarding the content of the document. This kind of agreement is
entered into by the shareholders voluntarily, so as to provide guidelines which
they should all follow, to help resolve disputes which arise, and to ensure
that their investments are protected.

So, from a
shareholder’s perspective, is there a need for one? Well, not necessarily, but
it could prove useful in a number of different circumstances. As mentioned
earlier, no-one is legally obliged to sign a shareholder’s agreement, however
it a contract such as this can alter the default legal relationship which
exists between the shareholder and the business in a way which benefits
everyone in involved; these alterations might include additional provisions for
the protection of investments, and notes regarding what steps to take, should
certain conflicts arise.

Some of the key
advantages of a shareholder agreement include the ability to impose
restrictions on how shares are transferred and mandated, allowing for more
control over who owns the shares in the business. Minority shareholders will
also usually be offered more protection in a shareholder contract, and the
appointment of directors will often be included, as well as the terms of their
employment. Shareholder’s agreements generally add notes on how the business is
to be financed, and there will be clear rules set out regarding the dividends
of payments, including the director’s fees and salary.

As for when a shareholder agreement should be entered into, this will
vary from business to business. From a legal perspective, shareholders are free
to enter into it at any time; before the business has been formed, or later on
after it has been established. However, it is generally recommended that those
interested, agree to the terms of the contract as soon as possible, as if
conflicts arise, or a shareholder decides to transfer their shares before
having signed this contract, then it will be too late to attempt negotiations.
With this in mind, shareholders should try to set up the terms of this contract
when the business is being created, or very soon after it begins operations, as
this will ultimately make life easier for the shareholder’s involved.